The pine tree nursery received an invoice for $1,750 worth of merchandise and $90.50 in freight...

The pine tree nursery received an invoice for $1,750 worth of merchandise and $90.50 in freight charges. The invoice carries terms of 3/10,n/30. If the company borrows money at 12% to pay the invoice within the discount period, what is the face value of the note? (the amount that pine tree would have to pay when the loan matures) (Round to the nearest dollar.) ( Discounts not allowed on freight, but it is still included in the amount borrowed.)

Expert Solution

Here, “3" indicates the discount percentage offered by the seller.

"10" indicates the number of days (from the invoice date) within which the buyer should pay the invoice in order to receive the discount.

"n/30" means that if the buyer does not pay the (full) invoice amount within the 10 days to qualify for the discount, then the net amount is due within 30 days after the sales invoice date.

The amount payable by the pine tree nursery is $ 1750+$ 90.50 = $ 1840.50. The discount is 3% of invoice i.e. 3 % of $ 1750 = $ 52.50. Thus, the amount paid by the pine tree nursery is $ 1840.50 - $ 52.50 = $ 1788. Thus, the pine tree nursery has borrowed $ 1788 to pay on the 10^th day of the invoice. The interest on $ 1788 for (30-10) = 20 days is $ 1788*20/360 * 12/100 = $ 11.92 ( on rounding off to the nearest cent). Hence, the face value of the note is $ 1788+$ 11.92 = $1799.92.

Note:

The banking year is assumed to be of 360 days in US. If we assume it to be of 365 days, then the interest on $ 1788 for (30-10) = 20 days is $ 1788*20/365 * 12/100 = $ 11.76 ( on rounding off to the nearest cent). Hence, the face value of the note is $ 1788+$ 11.76 = $1799.76.

milcah answered 1 year ago

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